Dell gets $200 mil 'big'uns'-Way to go Tennessee,good Mayor.
Frank:
'Welfare' my ass-et that Weinstein dude seems to be a Commie economist.<vbg>
Besides since when is an economist ever right,right?
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Dell Computer Tax Break Called Both Economic Magnet, Welfare
Nashville, Tennessee, July 14 (Bloomberg) -- Dell Computer Corp. is on the verge of receiving what some economists say is one of the biggest packages of tax incentives ever given to a corporation by a state or local government.
The Nashville, Tennessee, city council Tuesday night is expected to approve a package worth more than $200 million by some estimates to cement Dell's agreement to build a new manufacturing plant in the city.
If granted, Dell would pay no taxes on the facility -- its first U.S. plant outside its home state of Texas -- or the land around it for 40 years. The city also would provide improvements and services, and set aside $500 a year for each employee hired by the world's biggest direct seller of personal computers. ''It appears to be one of the most egregious examples of corporate welfare in the annals of history,'' said Bernard Weinstein, head of the Center for Economic Development at the University of North Texas in Denton.
Economists have decried such incentive packages for years, saying the cost in lost tax revenue typically outweighs the benefits of more jobs. Local government leaders, however, such as Nashville Mayor Phil Bredesen, say the benefits go far beyond tangibles such as tax dollars. ''We are not a player in the high-tech field here in Nashville, and this is the best thing I could come up with to get us in the game,'' Bredesen said.
Magnet
Already, several Dell suppliers, such as Austin Foam Plastics, which makes packaging for Dell PCs, have said they plan to set up shop in Nashville. Bredesen is betting that Dell will become a magnet for other high-tech companies as well.
The mayor, who leaves office in September after eight years, has used tax breaks to lure Columbia/HCA Healthcare Corp. and retailer Dollar General Corp. to this capital city of just more than a million people. He also championed a $292 million downtown stadium project for the Tennessee Titans, formerly the Houston Oilers, that included some $185 million in state and local bonds.
The Dell agreement would waive 40 years of property taxes, estimated at $189 million, according to a study by Middle Tennessee State University commissioned by the mayor.
The contract also provides 150 acres of land near the Nashville International Airport valued at $6.5 million, $8 million in improvements such as roads and power lines, and gives $500 for each employee Dell hires to an industrial development board, which in turn can disperse the money for additional improvements to the Dell site.
The Tennessean newspaper, in an analysis based on the MTSU study, found the incentives would actually cost the city about $70 million during the life of the agreement, based on lost tax revenue as well as the estimated cost of increased city services to cover growth.
Bredesen strongly disagrees, saying he believes the city will gain about $100 million during the 40-year period. 'Beaten Up'
Dell spokeswoman Cathie Hargett said the newspaper's analysis didn't include indirect benefits, like jobs created by Dell suppliers. ''The tax revenue is really infinitesimal compared to the overall benefit,'' she said.
Dell, based in the Austin suburb of Round Rock, Texas, estimates its factory will add as much as $690 million to the middle Tennessee economy and create as many as 8,000 jobs in five years. Dell itself expects to hire 3,000 of those, Hargett said.
Dell's assessment is based in part on the company's growth in central Texas, where it says it's responsible for pumping $5 billion annually into the economy and creating 50,000 jobs.
Dell's stock was the best performer on the Standard & Poor's 500 Index for the past three years. This year, the shares have gained just 19 percent as the company's sales growth slowed.
While a handful of the 41 members of Nashville's Metro Council voiced concerns about the incentive plan, even critics say they expect it to pass.
Councilwoman Saletta Holloway said she hasn't decided how she will vote, although she said council members have ''been kind of beaten up'' because Dell and the mayor left little room for changes when they negotiated the incentive package. ''We were told that if anything changes in the plan, the plan is off,'' she said.
Dellfare?
If the agreement with Nashville falls through, other Tennessee locations, such as neighboring Wilson County and the city of Lebanon, already have ponied up tax breaks of their own.
Dell already is leasing temporary space in Lebanon and plans to have 1,000 workers building its Dimension PCs there by year's end. The space could become permanent depending on how quickly Dell's operation grows, Hargett said. ''Our cities and states should not compete this way,'' said Art Rolnick, director of research for the Federal Reserve Bank of Minneapolis, which dubbed such battles ''The Economic War Between in the States'' in a 1996 report. ''This war they're fighting is a losing one.''
That's because as more people move to Nashville to fill the jobs Dell creates, the city may find it lacks the tax revenue to pay for services to support them, said Weinstein, the UNT economist. The new jobs tend to be low-paying, starting at less than $8 an hour. ''A job is not a job,'' he said. ''Against the backdrop of rising labor shortages, trying to raise a few thousand low-paying jobs isn't that much of an accomplishment.''
What's more, tax breaks favor new businesses while shifting a greater burden to existing companies, most of whom probably didn't receive similar incentives, the Fed's Rolnick said. ''The real problem here is the preferential treatment,'' he said. ''Your existing businesses create jobs, too.''
Pragmatism
Yet the cities and states fight because everyone else does. ''Ultimately, it comes down to pragmatism,'' Bredesen said. ''There are plenty of places where Dell could have gone.''
The only way to end the battles is for the federal government to intervene, Rolnick said.
A bill before Congress would impose federal taxes on a company that gets local or state incentives. Rolnick and other economists would like to see it go further -- a federal tax that would equal the incentives, thereby rendering them meaningless.
Bredesen said he'd love to see a system in which gamesmanship wasn't required to lure businesses and create jobs. But he makes no apologies for Dell's incentive package. ''You've got to choose between making a statement and having Dell come here,'' he said. ''We chose to have Dell.''
The ultimate statement, however, may come at the end of the 40 years, when the city weighs what it got against what it gave, UNT's Weinstein said. ''If Nashville thinks that Dell Computer is going to help stimulate Nashville to become a major center for computers or high tech, they're going to be sorely disappointed,'' he said.
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